By Joelle Best
On June 9, 2026, the SEC Division of Examinations released a Risk Alert related to economic conflicts of interest – its first Alert in 2026 and the second under Chair Atkins. The Alert highlighted five areas with recurring compliance deficiencies found during examinations of investment advisers, with a focus on eliminating, mitigating, or disclosing conflicts of interest. This Risk Alert expands upon the 2026 Exam Priorities, which included the impact of advisers’ financial conflicts of interest on providing impartial advice as an area of focus.
1. Cash Management Programs
Advisers recommended arrangements that automatically swept client cash into interest-bearing accounts that provided additional revenue to the adviser or its affiliates. These arrangements were often not adequately disclosed and omitted incentives created by the compensation received. The staff also flagged hedged disclosures in cases where advisers stated they “may” receive revenue from bank sweep programs when they actually did receive revenue. Advisers also failed to disclose that client cash balances remained subject to advisory fees, causing investment returns on cash to be reduced or, in some instances, negative after fees and expenses.
Tip: Review cash management programs and billing practices to ensure all fees, expenses, and conflicts of interest are disclosed. Confirm disclosures describe conflicts that actually exist, not conflicts that “may” exist.
2. Revenue Opportunities
Advisers selected mutual fund share classes that paid 12b-1 fees to the adviser (as a dually registered broker-dealer), its affiliates, or its representatives when lower-cost share classes of the same funds were available. This conflict was not fully disclosed and resulted in reduced net returns for clients and increased compensation for the adviser and its related parties. Inadequate disclosures were also observed regarding compensation derived from custodial credits, margin lending arrangements, transaction markups, and interest rate markups on client margin loans.
Tip: Conduct ongoing reviews of mutual fund share classes, and either convert eligible clients to lower-cost share classes or document why the existing share class remains in the client’s best interest. Evaluate any economic benefits to the firm, affiliates or firm personnel, and whether such economic benefits are sufficiently disclosed to clients.
3. Form ADV Disclosure
Advisers did not fully disclose material conflicts of interest, often omitting key information about affiliated firms, revenue-sharing arrangements, and the recommendation of broker-dealers for client transactions. In some instances, disclosures were inconsistent or did not include all material facts.
Tip: Review your Form ADV 2A Brochure disclosures, particularly Item 10 – Other Financial Industry Activities and Affiliations, and Item 12 – Brokerage Practices for conflict-of- interest disclosures and ensure disclosures are complete and consistent with other disclosures.
4. Fee Billing Practices
Advisers were charging fees in ways that conflicted with advisory agreements and disclosure documents. Examples included prorating fees where agreements and disclosures did not address proration, charging advisory fees on assets that should have been excluded from billing calculations, applying incorrect fee rates, failing to provide fee rebates, charging clients for services that were not actually provided, and failing to refund prepaid fees when clients terminated mid-billing period.
Tip: Conduct ongoing fee billing reviews to ensure the correct fee rate and account value are used to calculate advisory fees, and fees charged are consistent with advisory contracts, including refunds owed on terminated accounts.
5. Compliance Programs
Many firms lacked policies and procedures tailored to their actual billing practices. Deficiencies included inadequate controls over fee calculations, insufficient monitoring of rebates and refunds, inconsistent language across policies and client disclosures, and weak procedures for testing billing accuracy. These shortcomings often resulted in client overbilling.
Tip: Review policies and procedures at least annually to ensure they are consistent with firm practices, disclosure documents, and advisory agreements.
The Division noted that examinations frequently lead to client reimbursements for fee errors and improvements in disclosure and compliance processes. Firms should continue to review potential and actual conflicts of interest on an ongoing basis and confirm that clients receive full and fair disclosure regarding such conflicts.